Sogo Shosha Mirror the Japanese Economy

1950s (1949-1964)

Following WWII the sogo shosha basically supplied the raw/intermediate materials, industrial machinery/equipment and technology to Japanese industry needed to rebuild and reindustrialize. At the same time, they also imported energy resources and foodstuff to support the Japanese economy.

1960s (1964-1973)

The Tokyo Olympics marked the emergence of Japan as a consumer economy with the population growing, incomes growing and the economy growing at over 10% annually. Sales of TVs, refrigerators, automobiles, houses, etc., boomed. Lacking natural/energy resources the government encourages the sogo shosha to invest in natural resource development. The sogo shosha increased imports of raw and intermediate materials to fuel Japan’s growth and handled the distribution of more sophisticated materials needed for consumer product manufacturing.

The sogo shosha started to export higher value-added manufactures and market such consumer products as automobiles and electronics overseas, expanding their overseas network.

They also moved into domestic real estate development downstream. The sogo shosha were already supplying the construction industry with construction materials and equipment upstream, but to handle the building boom construction companies needed the sogo shosha for financing, distribution and planning. The sogo shosha also moved downstream into food distribution/wholesaling. As incomes rose the Japanese diet shifted to more processed foods which required additional materials and more complex distribution. As a result, the sogo shosha developed more integrated logistics/distribution networks (distribution processing centers, etc.).

As the sogo shosha moved downstream their integrated upstream-downstream business model began to emerge.

1970s-1980s (1973-1990)

In the wake of the first oil shock in 1973, oil money began pouring into many oil producing countries, which wanted to invest in their own refineries, petro-chemical plants and other types of infrastructure. With a strong presence in oil and resource rich countries, and Japan having highly advanced engineering and technology capability, the shosha’s large scale project business took off. (The shosha had been involved in some industrial machinery and plant export in the 1960s to a limited extent.).

With its network of customers (consortium) in various industries and its trade (import-export procedures), logistics (transport of machinery, etc.), project finance and risk management expertise (functions) the shosha are ideally suited to the planning and organization of infrastructure and other large scale projects. With Japan the largest contributor of official development assistance to developing countries until recently, this has become big business for the sogo shosha.

The sogo shosha faced a crisis, or trader’s dilemma, in the late 70s and early 80s as large Japanese manufacturers began eliminating them as middlemen (the winter of the sogo shosha). As the shosha’s core business is trade, without goods or materials to supply their customers the shosha don’t have a business. The solution: Invest in manufacturers or manufacturing JVs (supply sources) to secure goods and materials and protect themselves in the supply chain.

Reflecting the changing Japanese economy they entered the service industry; fast food/health clubs/financial services, etc., and began importing such high value-added products as aviation equipment, including aircraft (actually began earlier) medical equipment and personal computers/software.

The sogo shosha moved into the large scale project business and began to invest upstream and downstream in the supply chain to protect their position as a trader/intermediary (ownership).

As Japanese manufacturers moved overseas in the 1980s-early 90s, (85% of Japan’s accumulative foreign direct investment came after the mid-1980s) the sogo shosha provided logistics support and entered into some JVs with them, expanding their third country trade in the process.

From the mid-1990s into the 2000s the sogo shosha entered the I(C)T, media content (cable TV, etc.), medical-health care, environmental-related and renewable energy sectors, among others. They also expanded their large-scale infrastructure project business as well as their handling of highly advanced materials. Their investment in the retail sector also increased.

Following the bursting of the economic bubble the sogo shosha faced such domestic changes as a mature, low-growth economy (low birth rate/aging society), a financial crisis and credit crunch, deflationary pressures and deregulation in the economy. At the same time they faced such global challenges as the IT revolution, the manufacturing rise of China and other newly emerging countries, the Asian crisis (heavily invested), and globalization, meaning mega-competition. This led to cash flow problems and financial losses at the sogo shosha.

As a result, from the late 1990s to the mid-2000s the sogo shsha were mostly focused on balance sheet restructuring and the revamping of their management systems, especially how they managed their investments. Note though that their basic integrated upstream-downstream business model and core role as a trader/supplier/intermediary remained unchanged.

After successfully emerging from restructuring, the sogo shosha have strengthened their business through aggressive investment both upstream in natural and energy resources and food commodities and downstream in wholesale and retail.

The sogo shosha emerged from their period of restructuring stronger and have reinforced their integrated upstream-downstream business model through aggressive investment.